Must Public Information Always Crowd Out Private Information?

Abstract

This paper studies the impacts of public information release in a class of models with strategic information acquisition. Due to the presence of strategic complementarity, multiple equilibria can arise, creating difficulty in analyzing comparative statics. We develop a methodology to apply global-game refinement in this setting and use it to study a model with a dynamic complementarity in information acquisition. The resulting unique equilibrium is shown to have a property that none of the underlying equilibria have: while in all the underlying equilibria public information always crowds out private information, in the global-game equilibrium public information can crowd in more private information acquisition. The crowding-in effect is more pronounced when fundamental uncertainty is high and reverts back to crowding out when uncertainty is low. Omitting this effect could lead the regulator to disclose too little public information especially in recessions, which are often associated with rising uncertainty.